1997 (5) TMI 129 - AT - Central Excise

Tribunal upholds reversal of Modvat credit for wrongly claimed tire exemption, sets aside Excise Duty demand.

The Tribunal upheld the reversal of Modvat credit amounting to Rs. 34,26,735.88 as the appellants wrongly claimed credit on tyres used in tractors ... Modvat - Exemption from duty - Penalty Issues:1. Whether the appellants were entitled to Modvat credit and exemption under Notification No. 42/86 for tyres and tubes used in tractors.2. Whether the demand for Central Excise Duty of Rs. 10,03,135.35 was valid.3. Imposition of penalty for not reversing Modvat credit on inputs.Analysis:1. The appellants were engaged in manufacturing tyres and tubes for tractors, with exemption available under Notification No. 42/86 for tyres used in tractors with engine capacity not exceeding 1800 cc. The appellants maintained separate accounts for tyres used in tractors of varying engine capacities. They withdrew tyres from the stock meant for tractors exceeding 1800 cc and used them in tractors not exceeding 1800 cc, claiming Modvat credit on inputs. The Tribunal held that since the tyres used in tractors not exceeding 1800 cc were exempted, Modvat credit was not admissible. Therefore, the Tribunal upheld the reversal of Modvat credit amounting to Rs. 34,26,735.88.2. The Department demanded Central Excise Duty of Rs. 10,03,135.35, alleging that duty should have been paid on the withdrawn tyres. However, the Tribunal found that the tyres and tubes were cleared under the exemption Notification No. 42/86 and were not liable for duty payment. As there was no evidence presented to justify the duty demand, the Tribunal set aside the demand of Rs. 10,03,135.35, ruling it as unsustainable in law.3. Regarding the penalty imposed for not reversing the Modvat credit taken on inputs, the Tribunal deemed the penalty justified as the appellants failed to reverse the credit. The Tribunal found the quantum of penalty reasonable and declined to interfere with it. Consequently, the impugned order was modified to uphold the reversal of Modvat credit, set aside the demand for Central Excise Duty, and confirmed the imposition of the penalty. The appeal was disposed of accordingly, with any consequential relief to be granted in accordance with the law.